REQUISITES OF A VALID CONTRACT

TOPIC: REQUISITES OF A VALID CONTRACT

SUBMITTED BY: RIYA GUPTA(ICFAI UNIVERSITY CITY 

INTRODUCTION

A contract can be defined as a legally enforceable agreement that generates, outlines, and administers mutual rights and obligations among its parties. A contract involves the transfer of goods, services, money, or a promise to transfer any of those at an upcoming date. A valid contract can be defined as an agreement, which is binding and enforceable on the parties. In a valid contract, all the parties are legally bound to perform the terms and conditions of the contract. The Indian Contract Act, 1872 defines and mentions the essentials of a valid contract through various judgments of the Indian judiciary. Section 10 of the contract act 1872 enumerates the points of essentials for valid contracts.

The contract act, 1872 states, ‘an agreement enforceable by law is a contract. Therefore, for a valid contract, there has to be an agreement between the parties which is enforceable by law. Thus, for the enforceability of a contract, an agreement must possess the essential elements of a valid contract as provided in the contract act, 1872.

Contract = Agreement + Enforceability

A contract is considered to be valid and legally binding if the following crucial elements are present in it :

  1. Offer
  2.  Acceptance
  3. Legal relationship
  4.  Consideration
  5.  Legality and capacity

 

  1. OFFER:

An offer is basically a proposal creating specific terms for one party to enter into an agreement with another party, which is essential for the formation of an enforceable and valid contract.

Section 2 sub-clause (a) of the contract act specifies that when one person signifies to another person his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal.

ILLUSTRATION

 ‘X’ proposes, to sell a car to ‘Y’ at a certain price of Rs. 10 Lakh. Once ‘Y’ receives the letter, the proposal communication is complete.

Offer must be certain and definite

The terms of the offer must be certain and definite in order to create a valid contract, it must never be ambiguous.

Offer may be specific or general

 A specific offer is an offer that is accepted by any specific or particular person or by any group of persons to whom it is made. On the other hand, general offers can be accepted by any person.

  1. ACCEPTANCE:

The Indian Contract Act of 1872 defines acceptance in Section 2 (b) where it says that  “When the person to whom the proposal is made signifies his assent thereto, the offer is said to be accepted. Therefore, the proposal when accepted becomes a promise.” An offer can also be revoked before it is accepted.

As it is given in the definition, if the offer is accepted unconditionally by the offeree to whom the offer is made, it will automatically amount to acceptance. When the offer is accepted it becomes a promise.

Example

‘X’ offers to buy P’s house for rupees 90 lacs and ‘P’ accepts such offer made by X. Now, it has become a promise.

When an offer is accepted by the party and it becomes a promise it also becomes irrevocable.

  1. Legal relationship:

Parties to create a valid and enforceable contract must desire to constitute a legal relationship. It occurs when the parties know that if any one of them fails to perform his/her part of the promise, he/she would be liable for the failure to perform that duty.

If there is no desire of the parties to create a legal relationship between them, then there is no contract between the parties. Agreements of social or any domestic natures, which do not anticipate a legal relationship, are not valid contracts.

  1. CONSIDERATION:

As per section 2(d) of the Indian Contract Act “when at the desire of the promisor, promisee or any other person has done or abstained from doing or does or abstains from doing or promises to do or to abstain from doing something, such act or abstinence, or promise is called a consideration for the promise.”

Example :

An offer was made by P to sell his bike to A for a sum of ` 1,00,000. A accepts the offer. In this contract,

 P is the promisor and it is his desire to sell his bike for ` 1,00,000

 A is the promisee and on the desire of P, he is purchasing the car for ` 1,00,000.

The consideration for P’s promise is a sum of ` 1,00,000 while consideration for A’s promise is the bike.

Case Law

In Currie v. Misa[2], it was said that “A valuable consideration in the sense of the law may consist either in some right, interest, forbearance, detriment, loss or responsibility, given, suffered or undertaken by the other.”

5.   Competency of parties

The parties to an agreement should always be capable of contracting. They should be capable of entering into the contract.

According to the Contract act, every person is competent to a contract who has attained the age of majority to which he/she is subject to and who is of the sound mind and is not disqualified from the contracting by any law for the time being in force to which he/she is subject.

According to Section 11 of the Indian Contract Act, “Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind and is not disqualified from contracting by any law to which he is subject.”

Thus, according to the contract act, the following is not competent to enter into a contract:

  • A minor
  • A person of unsound mind
  • A person declared disqualified to get into a contract under any Law
  1. Free consent

For the contract to be valid and enforceable there has to be the consent of the parties and that consent should be free consent. As per the Contract Act, two or more parties are said to consent when they agree upon the same things in the same sense.

Mere consent is not sufficient for a contract to be enforceable. The consent given must be free and voluntary in nature.  The definition of Free consent is given under the Indian Contracts Act. Consent is said to be free consent if it is free from Coercion, Undue Influence, Fraud, Misrepresentation or Mistake.

 The consent is considered free when any of the following things are not present in the contract:

  • Coercion
  • Misrepresentation
  • Fraud
  • Undue influence
  • Mistake
  1. Lawful objects

 There have to be lawful objects for a contract to be valid. According to the Contract act, an agreement may become a valid contract only, if it is for a lawful consideration and includes a lawful object. Section 23 of the contract act specifies the lawful objects for a valid contract.

The considerations and objects which are not lawful as per the Contract Act are:

  • If it is forbidden by law
  • If it is against the provision of any other laws
  • If it is fraudulent
  • If it damages somebody’s person or property
  • If it is in the opinion of courts, immoral or against the public policies

If an agreement is illegal, immoral or against the public policy, such an agreement becomes an invalid contract.

  1. CERTAINTY:

To form a valid contract, the terms of the contract must not be vague or uncertain or ambiguous. The terms and conditions of a contract must be of a nature that can be performed that is are not impossible to perform.

Possibility of Performance

A valid contract must be capable of performing in nature. An agreement to do an act impossible in itself is a void agreement. If the act is impossible in itself, physically, practically or legally then the agreement will not be enforceable.

Not expressly declared void

 The following agreements have been declared to be void under the Contract Act.

  • An agreement in restraint of marriage
  • An agreement in restraint of trade
  • An agreement by way of wager

CASE LAWS:

1.BALFOUR v. BALFOUR[3]

Brief facts: Mr. & Mrs Balfour used to live in Ceylon. Once They went on a vacation to England and during their vacation Mrs Balfour was diagnose/d with a disease that was ‘Rheumatic Arthritis’. The doctor advised her to take proper rest for a few days because her health could weaken, with the change in weather, therefore she decided to stay back in England whereas her husband returned back to Ceylon. Mr Balfour promised to send her £30 every month until she stayed back in England. subsequently, Mr Balfour stopped sending the amount to Mrs Balfour. Mrs Balfour sued him for non-payment of monthly payments.

Decision: The appellate court held that the planning between Mrs and Mr Balfour was merely a social agreement and not a contract. Mr Balfour had ‘no intention to create a legal obligation.

2.MOHORI BIBEE v. DHARMODAS GHOSE[4]

Brief facts: Plaintiff here, Dharmodas Ghose was in great need of money therefore, he decided to pledge his property and asked for a loan of Rs. 20,000 from the moneylender Brahmo Dutt. The debt amount given was less than Rs. 20,000. Brahmo Dutt who was acting as an attorney at that time on the behalf of the moneylender, already knew that Dharmodas Ghose was a minor while entering into a contract with him. Plaintiff filed a suit against Brahmo Dutt saying that the mortgage deed should be null and void because he was a minor at the time of contract. Later, Brahmo Dutt passed away and the appeal was indicted by his executors. And it was said by the defendant that the plaintiff should not be excused as he misrepresented his age to him.

Decision: The Privy Council here held that the; person who mortgaged the property was minor at the time of execution of the contract. Therefore, the mortgage deed which was made between the plaintiff and the defendant was not only avoidable but also was considered void. It also held that any contract made with a minor is ‘void ab-Initio. As minors are incompetent to contract so, such contracts are considered void and invalid in the eyes of law. The minor is not bound to pay back the amount that was advanced to him as he was not bound by the promise that was made in the contract because of incapacity to enter into the contract.

And any contract entered into with a minor shall be null and void because of his incapacity. Agreements done by the minors without the knowledge and consent of their guardians or parents shall not be considered valid

CONCLUSION

As per my view for a contract to be valid and enforceable there are certain essential elements that are to be fulfilled. If the contract lacks any of those essential elements, then the contract will be treated as void or void- ab – initio or may be voidable. Some essential elements are that there has to be offer and acceptance between the parties. There has to be free consent of the parties. Parties must be competent to contract i.e., they should be of the age of majority and not disqualified by any law and of sound mind. Parties must desire to enter into a legal relationship. There have to be lawful considerations and lawful objects in a contract. At last, the contract must have certainty for its performance.

Endnotes

[1] Morawetz, Victor (1925-02-02). “The Elements of a Contract” (PDF).

[2] (1875) LR 10 Ex 153; (1875-76) LR 1 App Cas 554

[3] [1919] 2KB 571

[4] 1903 30 Cal 539

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